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Want water? You may have to drink the P3 Kool-Aid first

There’s an ideological battle raging in the Fraser Valley, and the cost and reliability of region's future water supply may depend on who wins.

Concerned about water scarcity in the future, Abbotsford and Mission want to develop a new municipal water source at Stave Lake.

The original proposal was to build the project as a public-private partnership, or P3. But the partnership arrangement proved controversial because of concerns about the possibility of losing control of local water resources, about several high-profile service problems on water P3s elswhere and about the potential for spiraling water rates.

The plan required approval by municipal councils in both regions. Given the hostile public response, Mission Council has rejected the proposal and Abbotsford is delaying its vote.

Abbotsford Mayor George Peary, however, still vows to push the plan through.

Given that city councils are elected by local residents, and local residents clearly oppose this project, you might be wondering why local politicians would propose such a controversial plan -- or continue to push it.

It turns out the federal government has a lot to do with it.

According to the Vancouver Sun, building the project as a P3 would save 25 per cent on construction costs.These savings wouldn't come from the supposed efficiencies of private involvement, but rather because Ottawa makes partial funding available for projects that are built as P3s.

The Abbotsford Times reports that Jim Gordon, general manager of the Abbotsford Mission Water Sewer Commission, has said no other federal funding programs exist for a project of this nature. That means that PPP Canada -- a Crown corporation that set up shop in 2009 -- is the source of federal money.

The Canadian Union of Public Employees, which isn't impressed with the process, describes it this way: “While other federal funding programs also encourage privatization through P3s, this new corporation takes federal efforts to force P3s on communities to a new level.”

Given that the case for a P3 is premised on promised cost savings, why is it necessary for the federal government to provide money to ensure the deals happen? Well, it turns out that P3s don’t actually deliver any benefits and cities are turning away from P3s in droves.

In what may be a watershed moment, New York City Mayor Michael Bloomberg’s administration announced it plans to bring previously outsourced tasks in-house to save money.

The failure of P3s to live up to their promise also prompted the New York Times to host an online debate, Is Privatization a Bad Deal for Cities and States? Turns out problems with outsourced work is driving work back in-house due to a litany of problems, including service quality (61 per cent), lack of cost savings (52 per cent), improvements in public delivery (34 per cent), problems with monitoring (17 per cent) and political support to bring the work back in-house (17 per cent).

Rigorous quantitative analysis of every published study from around the world of water delivery finds no statistical support for cost savings under privatization. This is not surprising, since private firms have incentives to reduce quality to enhance profit.

In order to counter this motivation, careful monitoring is required. That monitoring is expensive and requires that a government maintain internal expertise to properly oversee private operators. (This topic is examined in detail in University of B.C. Prof. Karen Bakker’s book Privatizing Water: Governance Failure and the World’s Urban Water Crisis.)

As well, private companies may be better at squeezing pay cuts and slashing benefits for already low-paid workers -- but they have been completely unable to impose any kind of discipline or efficiency to the salaries at the higher end.

In addition to the lack of cost savings from P3s, citizens prefer local services to be controlled locally and delivered publicly. In other words, without government inducements, the P3 agenda would likely stall.

There is a delicious irony in businesses and politicians claiming efficiency advantages of private enterprise over government functions yet having to depend on taxpayer largess to make those enterprises viable.

And it would be funny, save for the potentially damaging consequence to our public water supplies.